Budgeting
Budget versus actual
Flex the budget to actual volume and separate volume from price and spending variances.
Ardent Bottling budgeted to sell 50,000 cases this quarter. Flex the budget to the volume actually sold, so price and spending can be judged against what the actual volume should have cost.
Budget and actual
| Line | Static budget | Actual |
|---|---|---|
| Units sold | ||
| RevenueBudget: price per unit · Actual: total | ||
| MaterialsVariable · budget per unit | ||
| Direct labourVariable · budget per unit | ||
| Variable overheadVariable · budget per unit | ||
| Sales commissionVariable · budget per unit | ||
| Fixed factory overheadFixed · budget total | ||
| AdministrationFixed · budget total |
| Line | Static budget | Volume variance | Flexed budget | Price / spending variance | Actual |
|---|---|---|---|---|---|
| Revenue | 200,000.00 | 16,000.00 F | 216,000.00 | 5,400.00 A | 210,600.00 |
| Materials | 60,000.00 | 4,800.00 A | 64,800.00 | 3,240.00 A | 68,040.00 |
| Direct labour | 30,000.00 | 2,400.00 A | 32,400.00 | 1,080.00 F | 31,320.00 |
| Variable overhead | 15,000.00 | 1,200.00 A | 16,200.00 | 1,080.00 A | 17,280.00 |
| Sales commission | 10,000.00 | 800.00 A | 10,800.00 | – | 10,800.00 |
| Contribution | 85,000.00 | 6,800.00 F | 91,800.00 | 8,640.00 A | 83,160.00 |
| Fixed factory overhead | 40,000.00 | – | 40,000.00 | 2,500.00 A | 42,500.00 |
| Administration | 25,000.00 | – | 25,000.00 | 700.00 F | 24,300.00 |
| Operating profit | 20,000.00 | 6,800.00 F | 26,800.00 | 10,440.00 A | 16,360.00 |
- Standard contribution per unit
- 1.70
- Sales volume variance (contribution)
- 6,800.00 F
- Sales price variance
- 5,400.00 A
✓ Budgeted profit plus all variances equals actual profit.
Commentary: the three largest variances
- Sales volume: 54,000 units sold against 50,000 budgeted added 6,800.00 of contribution at the standard 1.70 a unit (favourable).
- Sales price: an average of about 3.90 a unit against 4.00 budgeted reduced revenue by 5,400.00 (adverse).
- Materials: spending was 3,240.00 more than the flexed budget allows for the actual volume (adverse).
Generated from the figures; a variance shows where to ask questions, not who is responsible.
Learn it properly
- Variance analysis · Cost and Managerial Accounting
- Flexible budgets · Budgeting and Performance Management
- Budget versus actual analysis · Budgeting and Performance Management
All companies and figures in the simulators are fictional.